10-Q
Table of Contents

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________________________
 FORM 10-Q
___________________________________________
x
Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended September 30, 2015
or
¨
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from _______ to _______
Commission File Number: 001-15811
___________________________________________
MARKEL CORPORATION
(Exact name of registrant as specified in its charter)
___________________________________________
 
Virginia
 
54-1959284
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)

4521 Highwoods Parkway, Glen Allen, Virginia 23060-6148
(Address of principal executive offices)
(Zip Code)
(804) 747-0136
(Registrant's telephone number, including area code)
 ___________________________________________
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x   No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x No  ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  x
 
Accelerated filer  o
 
Non-accelerated filer  o
 
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x
Number of shares of the registrant's common stock outstanding at October 28, 2015: 13,950,253

Table of Contents

Markel Corporation
Form 10-Q
Index
 
 
 
 
 
 
Page Number
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets
(dollars in thousands)
 
September 30,
2015
 
December 31,
2014
 
(unaudited)
 
 
ASSETS
 
 
 
Investments, available-for-sale, at estimated fair value:
 
 
 
Fixed maturities (amortized cost of $8,937,575 in 2015 and $9,929,137 in 2014)
$
9,353,951

 
$
10,422,882

Equity securities (cost of $2,290,017 in 2015 and $1,951,658 in 2014)
4,156,413

 
4,137,576

Short-term investments (estimated fair value approximates cost)
2,323,983

 
1,594,849

Total Investments
15,834,347

 
16,155,307

Cash and cash equivalents
2,261,201

 
1,960,169

Restricted cash and cash equivalents
371,794

 
522,225

Receivables
1,249,429

 
1,135,217

Reinsurance recoverable on unpaid losses
1,973,249

 
1,868,669

Reinsurance recoverable on paid losses
85,896

 
102,206

Deferred policy acquisition costs
379,767

 
353,410

Prepaid reinsurance premiums
367,626

 
365,458

Goodwill
1,043,713

 
1,049,115

Intangible assets
652,667

 
702,747

Other assets
961,884

 
985,834

Total Assets
$
25,181,573

 
$
25,200,357

LIABILITIES AND EQUITY
 
 
 
Unpaid losses and loss adjustment expenses
$
10,388,209

 
$
10,404,152

Life and annuity benefits
1,159,901

 
1,305,818

Unearned premiums
2,377,904

 
2,245,690

Payables to insurance and reinsurance companies
318,078

 
276,122

Senior long-term debt and other debt (estimated fair value of $2,441,000 in 2015 and $2,493,000 in 2014)
2,240,517

 
2,253,594

Other liabilities
942,873

 
1,051,931

Total Liabilities
17,427,482

 
17,537,307

Redeemable noncontrolling interests
50,584

 
61,048

Commitments and contingencies

 

Shareholders' equity:
 
 
 
Common stock
3,335,208

 
3,308,395

Retained earnings
2,942,606

 
2,581,866

Accumulated other comprehensive income
1,417,416

 
1,704,557

Total Shareholders' Equity
7,695,230

 
7,594,818

Noncontrolling interests
8,277

 
7,184

Total Equity
7,703,507

 
7,602,002

Total Liabilities and Equity
$
25,181,573

 
$
25,200,357

See accompanying notes to consolidated financial statements.

3
Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income (Loss)
(Unaudited)
 
Quarter Ended September 30,
 
Nine Months Ended September 30,
 
2015
 
2014
 
2015
 
2014
 
(dollars in thousands, except per share data)
OPERATING REVENUES
 
 
 
 
 
 
 
Earned premiums
$
963,675

 
$
954,007

 
$
2,864,882

 
$
2,868,981

Net investment income
87,060

 
91,096

 
270,521

 
269,980

Net realized investment gains (losses):
 
 
 
 
 
 
 
Other-than-temporary impairment losses
(18,281
)
 
(2,851
)
 
(23,373
)
 
(3,858
)
Net realized investment gains, excluding other-than-temporary impairment losses
3,574

 
7,046

 
20,342

 
32,567

Net realized investment gains (losses)
(14,707
)
 
4,195

 
(3,031
)
 
28,709

Other revenues
306,736

 
249,988

 
817,151

 
630,242

Total Operating Revenues
1,342,764

 
1,299,286

 
3,949,523

 
3,797,912

OPERATING EXPENSES
 
 
 
 
 
 
 
Losses and loss adjustment expenses
484,737

 
570,966

 
1,467,926

 
1,723,675

Underwriting, acquisition and insurance expenses
365,619

 
350,493

 
1,085,956

 
1,071,985

Amortization of intangible assets
18,914

 
13,505

 
50,503

 
40,992

Other expenses
290,749

 
231,193

 
763,986

 
598,303

Total Operating Expenses
1,160,019

 
1,166,157

 
3,368,371

 
3,434,955

Operating Income
182,745

 
133,129

 
581,152

 
362,957

Interest expense
30,064

 
29,648

 
88,664

 
89,136

Income Before Income Taxes
152,681

 
103,481

 
492,488

 
273,821

Income tax expense
48,271

 
26,657

 
101,619

 
68,355

Net Income
104,410

 
76,824

 
390,869

 
205,466

Net income attributable to noncontrolling interests
1,891

 
1,021

 
5,989

 
1,879

Net Income to Shareholders
$
102,519

 
$
75,803

 
$
384,880

 
$
203,587

 
 
 
 
 
 
 
 
OTHER COMPREHENSIVE INCOME (LOSS)
 
 
 
 
 
 
 
Change in net unrealized gains on investments, net of taxes:
 
 
 
 
 
 
 
Net holding gains (losses) arising during the period
$
(149,266
)
 
$
(7,532
)
 
$
(258,386
)
 
$
348,096

Change in unrealized other-than-temporary impairment losses on fixed maturities arising during the period
(8
)
 
123

 
111

 
118

Reclassification adjustments for net gains (losses) included in net income
6,000

 
(4,990
)
 
(8,037
)
 
(15,752
)
Change in net unrealized gains on investments, net of taxes
(143,274
)
 
(12,399
)
 
(266,312
)
 
332,462

Change in foreign currency translation adjustments, net of taxes
(10,854
)
 
(27,223
)
 
(22,283
)
 
(19,639
)
Change in net actuarial pension loss, net of taxes
475

 
320

 
1,407

 
964

Total Other Comprehensive Income (Loss)
(153,653
)
 
(39,302
)
 
(287,188
)
 
313,787

Comprehensive Income (Loss)
(49,243
)
 
37,522

 
103,681

 
519,253

Comprehensive income attributable to noncontrolling interests
1,900

 
1,020

 
5,942

 
1,890

Comprehensive Income (Loss) to Shareholders
$
(51,143
)
 
$
36,502

 
$
97,739

 
$
517,363

 
 
 
 
 
 
 
 
NET INCOME PER SHARE
 
 
 
 
 
 
 
Basic
$
7.43

 
$
5.33

 
$
27.76

 
$
14.28

Diluted
$
7.39

 
$
5.30

 
$
27.60

 
$
14.21


See accompanying notes to consolidated financial statements.

4
Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Consolidated Statements of Changes in Equity
(Unaudited)
 
(in thousands)
Common Shares
 
Common
Stock
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income
 
Total
Shareholders'
Equity
 
Noncontrolling
Interests
 
Total Equity
 
Redeemable
Noncontrolling
Interests
December 31, 2013
13,986

 
$
3,288,863

 
$
2,294,909

 
$
1,089,805

 
$
6,673,577

 
$
4,433

 
$
6,678,010

 
$
72,183

Net income (loss)
 
 
 
 
203,587

 
—

 
203,587

 
(1,072
)
 
202,515

 
2,951

Other comprehensive income
 
 
 
 
—

 
313,776

 
313,776

 
—

 
313,776

 
11

Comprehensive Income (Loss)
 
 
 
 
 
 
 
 
517,363

 
(1,072
)
 
516,291

 
2,962

Issuance of common stock
16

 
4,960

 
—

 
—

 
4,960

 
—

 
4,960

 
—

Repurchase of common stock
(44
)
 
—

 
(25,922
)
 
—

 
(25,922
)
 
—

 
(25,922
)
 
—

Restricted stock units expensed
—

 
18,421

 
—

 
—

 
18,421

 
—

 
18,421

 
—

Adjustment of redeemable noncontrolling interests
—

 
—

 
(3,843
)
 
—

 
(3,843
)
 
—

 
(3,843
)
 
3,843

Purchase of noncontrolling interest
—

 
(10,257
)
 
—

 
—

 
(10,257
)
 
905

 
(9,352
)
 
(18,566
)
Other
—

 
881

 
13

 
—

 
894

 
3,910

 
4,804

 
(3,173
)
September 30, 2014
13,958

 
$
3,302,868

 
$
2,468,744

 
$
1,403,581

 
$
7,175,193

 
$
8,176

 
$
7,183,369

 
$
57,249

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2014
13,962

 
$
3,308,395

 
$
2,581,866

 
$
1,704,557

 
$
7,594,818

 
$
7,184

 
$
7,602,002

 
$
61,048

Net income
 
 
 
 
384,880

 
—

 
384,880

 
745

 
385,625

 
5,244

Other comprehensive loss
 
 
 
 
—

 
(287,141
)
 
(287,141
)
 
—

 
(287,141
)
 
(47
)
Comprehensive Income
 
 
 
 
 
 
 
 
97,739

 
745

 
98,484

 
5,197

Issuance of common stock
20

 
3,971

 
—

 
—

 
3,971

 
—

 
3,971

 
—

Repurchase of common stock
(32
)
 
—

 
(27,262
)
 
—

 
(27,262
)
 
—

 
(27,262
)
 
—

Restricted stock units expensed
—

 
19,983

 
—

 
—

 
19,983

 
—

 
19,983

 
—

Adjustment of redeemable noncontrolling interests
—

 
—

 
3,091

 
—

 
3,091

 
—

 
3,091

 
(3,091
)
Purchase of noncontrolling interest
—

 
(1,447
)
 
—

 
—

 
(1,447
)
 
—

 
(1,447
)
 
(8,224
)
Other
—

 
4,306

 
31

 
—

 
4,337

 
348

 
4,685

 
(4,346
)
September 30, 2015
13,950

 
$
3,335,208

 
$
2,942,606

 
$
1,417,416

 
$
7,695,230

 
$
8,277

 
$
7,703,507

 
$
50,584


See accompanying notes to consolidated financial statements.

5
Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows
(Unaudited)
 
Nine Months Ended September 30,
 
2015
 
2014
 
(dollars in thousands)
OPERATING ACTIVITIES
 
 
 
Net income
$
390,869

 
$
205,466

Adjustments to reconcile net income to net cash provided by operating activities
159,516

 
331,162

Net Cash Provided By Operating Activities
550,385

 
536,628

INVESTING ACTIVITIES
 
 
 
Proceeds from sales of fixed maturities and equity securities
211,479

 
1,183,237

Proceeds from maturities, calls and prepayments of fixed maturities
1,162,500

 
1,110,128

Cost of fixed maturities and equity securities purchased
(928,601
)
 
(2,687,075
)
Net change in short-term investments
(687,673
)
 
(213,618
)
Proceeds from sales of equity method investments
22,204

 
101,938

Cost of equity method investments
(21,464
)
 
(9,441
)
Change in restricted cash and cash equivalents
136,203

 
203,635

Additions to property and equipment
(62,055
)
 
(52,350
)
Acquisitions, net of cash acquired
—

 
(316,307
)
Other
(761
)
 
(1,487
)
Net Cash Used By Investing Activities
(168,168
)
 
(681,340
)
FINANCING ACTIVITIES
 
 
 
Additions to senior long-term debt and other debt
49,771

 
64,075

Repayment of senior long-term debt and other debt
(55,743
)
 
(40,397
)
Repurchases of common stock
(27,262
)
 
(25,922
)
Issuance of common stock
3,971

 
4,960

Purchase of noncontrolling interests
(12,474
)
 
(25,918
)
Distributions to noncontrolling interests
(3,724
)
 
(3,463
)
Other
(11,220
)
 
(20,074
)
Net Cash Used By Financing Activities
(56,681
)
 
(46,739
)
Effect of foreign currency rate changes on cash and cash equivalents
(24,504
)
 
(21,484
)
Increase (decrease) in cash and cash equivalents
301,032

 
(212,935
)
Cash and cash equivalents at beginning of period
1,960,169

 
1,978,526

CASH AND CASH EQUIVALENTS AT END OF PERIOD
$
2,261,201

 
$
1,765,591


See accompanying notes to consolidated financial statements.

6
Table of Contents

MARKEL CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation

Markel Corporation is a diverse financial holding company serving a variety of niche markets. Markel Corporation's principal business markets and underwrites specialty insurance products and programs. Through its wholly-owned subsidiary, Markel Ventures, Inc. (Markel Ventures), Markel Corporation also owns interests in various industrial and service businesses that operate outside of the specialty insurance marketplace.

The consolidated balance sheet as of September 30, 2015, the related consolidated statements of income and comprehensive income (loss) for the quarters and nine months ended September 30, 2015 and 2014, and the consolidated statements of changes in equity and cash flows for the nine months ended September 30, 2015 and 2014 are unaudited. In the opinion of management, all adjustments necessary for fair presentation of such consolidated financial statements have been included. Such adjustments consist only of normal, recurring items. Interim results are not necessarily indicative of results of operations for the entire year. The consolidated balance sheet as of December 31, 2014 was derived from Markel Corporation's audited annual consolidated financial statements.

The accompanying consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) and include the accounts of Markel Corporation and its subsidiaries (the Company). All significant intercompany balances and transactions have been eliminated in consolidation. The Company consolidates the results of its Markel Ventures subsidiaries on a one-month lag. Certain prior year amounts have been reclassified to conform to the current presentation.

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities. Actual results may differ materially from the estimates and assumptions used in preparing the consolidated financial statements.

The consolidated financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual consolidated financial statements and notes. Readers are urged to review the Company's 2014 Annual Report on Form 10-K for a more complete description of the Company's business and accounting policies.

2. Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which creates a new comprehensive revenue recognition standard that will serve as a single source of revenue guidance for all companies in all industries. The guidance applies to all companies that either enter into contracts with customers to transfer goods or services or enter into contracts for the transfer of nonfinancial assets, unless those contracts are within the scope of other standards, such as insurance contracts. ASU No. 2014-09's core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. In doing so, companies will need to use more judgment and make more estimates than under the current guidance. These may include identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606), Deferral of the Effective Date, which deferred the original effective date of ASU No. 2014-09 by one year. As a result, ASU No. 2014-09 becomes effective for the Company during the first quarter of 2018 and may be applied retrospectively or under a modified retrospective method where the cumulative effect is recognized at the date of initial application. Early application is permitted, but not before the first quarter of 2017. The Company is currently evaluating ASU No. 2014-09 to determine the potential impact that adopting this standard will have on its consolidated financial statements. Adoption of this ASU is not expected to have a significant impact on the Company's insurance operations, but may impact the Company's non-insurance operations.


7
Table of Contents

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which changes the way reporting enterprises evaluate whether (a) they should consolidate limited partnerships and similar entities, (b) fees paid to a decision maker or service provider are variable interests in a variable interest entity (VIE), and (c) variable interests in a VIE held by related parties of the reporting enterprise require the reporting enterprise to consolidate the VIE. It also eliminates the VIE consolidation model based on majority exposure to variability that applied to certain investment companies and similar entities. The ASU also significantly changes how to evaluate voting rights for entities that are not similar to limited partnerships when determining whether the entity is a VIE, which may affect entities for which the decision making rights are conveyed through a contractual arrangement. ASU No. 2015-02 becomes effective for the Company during the first quarter of 2016 and may be applied retrospectively or under a modified retrospective method where the cumulative-effect adjustment to retained earnings is recognized as of the beginning of the fiscal year of adoption. Reporting enterprises may also restate previously issued financial statements for one or more years with a cumulative-effect adjustment to retained earnings as of the beginning of the first year restated. Early adoption is allowed. The Company is currently evaluating ASU No. 2015-02 but does not expect adoption of this ASU will have a material impact on the Company's financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The ASU requires that debt issuance costs related to a recognized debt liability be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts. The cost of issuing debt will no longer be recorded as a separate asset on the balance sheet. The amortization of debt issuance costs will continue to be included in interest expense. ASU No. 2015-03 becomes effective for the Company during the first quarter of 2016 and will be applied retrospectively to all prior periods presented. Early application is permitted. The adoption of this ASU is not expected to have a material impact on the Company's financial position, results of operations or cash flows.

In April 2015, the FASB issued ASU No. 2015-05, Intangibles-Goodwill and Other-Internal-Use Software (Subtopic 350-40): Customer's Accounting for Fees Paid in a Cloud Computing Arrangement, which clarifies that software licenses contained in a cloud computing arrangement should be capitalized if the customer has the right to take possession of the software and the ability to run the software outside of the cloud computing arrangement. ASU No. 2015-05 becomes effective for the Company during the first quarter of 2016 and may be applied prospectively or retrospectively. Early application is permitted. The adoption of this ASU is not expected to have a material impact on the Company's financial position, results of operations or cash flows.

In May 2015, the FASB issued ASU No. 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The ASU requires significant new disclosures for insurers relating to short-duration insurance contract claims and the unpaid claims liability rollforward for long and short-duration contracts. The guidance requires annual tabular disclosure, on a disaggregated basis, of undiscounted incurred and paid claim and allocated claim adjustment expense development by accident year, on a net basis after reinsurance, for up to 10 years. Tables must also include the total incurred but not reported claims liabilities, plus expected development on reported claims, and claims frequency for each accident year. A description of estimation methodologies and any significant changes in methodologies and assumptions used to calculate the liability and frequency is also required. Based on the disaggregated claims information in the tables, disclosure of historical average annual percentage payout of incurred claims is also required. Interim period disclosures must include a tabular rollforward and related qualitative information for the liability for unpaid losses and loss adjustment expenses for both long-duration and short-duration contracts. ASU No. 2015-09 becomes effective for the Company during 2016, with interim disclosures required beginning in the first quarter of 2017. The ASU must be applied retrospectively by providing comparative disclosures for each period presented. Early application is permitted. The adoption of this ASU is not expected to have a material impact on the Company's financial position, results of operations or cash flows, but will expand the nature and extent of its insurance contract disclosures, as described above.

In July 2015, the FASB issued ASU No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. The ASU changes the measurement principle for inventory from the lower of cost or market to lower of cost and net realizable value and eliminates the requirement to consider replacement cost or net realizable value less an approximately normal profit margin when measuring inventory. ASU 2015-11 becomes effective for the Company during the first quarter of 2016 and will be applied prospectively. Early application is permitted. The Company is currently evaluating ASU No. 2015-11 to determine the potential impact that adopting this standard will have on its consolidated financial statements. Adoption of this ASU is not expected to impact the Company's insurance operations, but may impact the Company's non-insurance operations.

8
Table of Contents



In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. The ASU eliminates the requirement to retrospectively adjust the financial statements for measurement-period adjustments that occur in periods after a business combination is consummated. ASU 2015-16 becomes effective for the Company during the first quarter of 2016 and will be applied prospectively. Early application is permitted. The adoption of this ASU is not expected to have a material impact on the Company's financial position, results of operations or cash flows.
  
3. Investments

a)The following tables summarize the Company's available-for-sale investments.

 
September 30, 2015
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Unrealized
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
696,980

 
$
13,360

 
$
(1,545
)
 
$
—

 
$
708,795

Obligations of states, municipalities and political subdivisions
3,766,517

 
198,495

 
(8,688
)
 
—

 
3,956,324

Foreign governments
1,338,511

 
139,447

 
(826
)
 
—

 
1,477,132

Commercial mortgage-backed securities
441,814

 
10,808

 
(1,107
)
 
—

 
451,515

Residential mortgage-backed securities
860,869

 
34,272

 
(2,079
)
 
(2,258
)
 
890,804

Asset-backed securities
45,470

 
55

 
(125
)
 
—

 
45,400

Corporate bonds
1,787,414

 
48,535

 
(10,288
)
 
(1,680
)
 
1,823,981

Total fixed maturities
8,937,575

 
444,972

 
(24,658
)
 
(3,938
)
 
9,353,951

Equity securities:
 
 
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
629,814

 
658,077

 
(12,482
)
 
—

 
1,275,409

Industrial, consumer and all other
1,660,203

 
1,281,314

 
(60,513
)
 
—

 
2,881,004

Total equity securities
2,290,017

 
1,939,391

 
(72,995
)
 
—

 
4,156,413

Short-term investments
2,323,917

 
71

 
(5
)
 
—

 
2,323,983

Investments, available-for-sale
$
13,551,509

 
$
2,384,434

 
$
(97,658
)
 
$
(3,938
)
 
$
15,834,347


9
Table of Contents

 
December 31, 2014
(dollars in thousands)
Amortized
Cost
 
Gross
Unrealized
Holding
Gains
 
Gross
Unrealized
Holding
Losses
 
Unrealized
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
Fixed maturities:
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
662,462

 
$
12,963

 
$
(2,163
)
 
$
—

 
$
673,262

Obligations of states, municipalities and political subdivisions
4,075,748

 
245,158

 
(3,359
)
 
—

 
4,317,547

Foreign governments
1,458,255

 
154,707

 
(1,041
)
 
—

 
1,611,921

Commercial mortgage-backed securities
427,904

 
5,325

 
(2,602
)
 
—

 
430,627

Residential mortgage-backed securities
954,263

 
34,324

 
(3,482
)
 
(2,258
)
 
982,847

Asset-backed securities
100,073

 
99

 
(682
)
 
—

 
99,490

Corporate bonds
2,250,432

 
69,016

 
(10,441
)
 
(1,819
)
 
2,307,188

Total fixed maturities
9,929,137

 
521,592

 
(23,770
)
 
(4,077
)
 
10,422,882

Equity securities:
 
 
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
523,739

 
789,717

 
(1,531
)
 
—

 
1,311,925

Industrial, consumer and all other
1,427,919

 
1,403,566

 
(5,834
)
 
—

 
2,825,651

Total equity securities
1,951,658

 
2,193,283

 
(7,365
)
 
—

 
4,137,576

Short-term investments
1,594,819

 
36

 
(6
)
 
—

 
1,594,849

Investments, available-for-sale
$
13,475,614

 
$
2,714,911

 
$
(31,141
)
 
$
(4,077
)
 
$
16,155,307


10
Table of Contents

b)The following tables summarize gross unrealized investment losses by the length of time that securities have continuously been in an unrealized loss position.

 
September 30, 2015
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
72,511

 
$
(1,265
)
 
$
93,566

 
$
(280
)
 
$
166,077

 
$
(1,545
)
Obligations of states, municipalities and political subdivisions
297,670

 
(5,618
)
 
59,482

 
(3,070
)
 
357,152

 
(8,688
)
Foreign governments
27,208

 
(594
)
 
41,433

 
(232
)
 
68,641

 
(826
)
Commercial mortgage-backed securities
66,074

 
(258
)
 
100,233

 
(849
)
 
166,307

 
(1,107
)
Residential mortgage-backed securities
24,353

 
(2,321
)
 
147,001

 
(2,016
)
 
171,354

 
(4,337
)
Asset-backed securities
5,678

 
(2
)
 
26,720

 
(123
)
 
32,398

 
(125
)
Corporate bonds
270,889

 
(6,364
)
 
343,268

 
(5,604
)
 
614,157

 
(11,968
)
Total fixed maturities
764,383

 
(16,422
)
 
811,703

 
(12,174
)
 
1,576,086

 
(28,596
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
139,456

 
(11,308
)
 
6,676

 
(1,174
)
 
146,132

 
(12,482
)
Industrial, consumer and all other
387,475

 
(60,006
)
 
19,085

 
(507
)
 
406,560

 
(60,513
)
Total equity securities
526,931

 
(71,314
)
 
25,761

 
(1,681
)
 
552,692

 
(72,995
)
Short-term investments
139,990

 
(5
)
 
—

 
—

 
139,990

 
(5
)
Total
$
1,431,304

 
$
(87,741
)
 
$
837,464

 
$
(13,855
)
 
$
2,268,768

 
$
(101,596
)

At September 30, 2015, the Company held 567 securities with a total estimated fair value of $2.3 billion and gross unrealized losses of $101.6 million. Of these 567 securities, 268 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $837.5 million and gross unrealized losses of $13.9 million. Of these securities, 262 securities were fixed maturities and six were equity securities. The Company does not intend to sell or believe it will be required to sell these fixed maturities before recovery of their amortized cost. The Company has the ability and intent to hold these equity securities for a period of time sufficient to allow for the anticipated recovery of their fair value.


11
Table of Contents

 
December 31, 2014
 
Less than 12 months
 
12 months or longer
 
Total
(dollars in thousands)
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
 
Estimated
Fair
Value
 
Gross
Unrealized
Holding and
Other-Than-
Temporary
Impairment
Losses
Fixed maturities:
 
 
 
 
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
108,250

 
$
(62
)
 
$
163,359

 
$
(2,101
)
 
$
271,609

 
$
(2,163
)
Obligations of states, municipalities and political subdivisions
58,583

 
(542
)
 
92,441

 
(2,817
)
 
151,024

 
(3,359
)
Foreign governments
18,856

 
(386
)
 
56,217

 
(655
)
 
75,073

 
(1,041
)
Commercial mortgage-backed securities
45,931

 
(210
)
 
147,558

 
(2,392
)
 
193,489

 
(2,602
)
Residential mortgage-backed securities
9,613

 
(2,285
)
 
207,374

 
(3,455
)
 
216,987

 
(5,740
)
Asset-backed securities
30,448

 
(20
)
 
45,160

 
(662
)
 
75,608

 
(682
)
Corporate bonds
141,176

 
(2,263
)
 
621,821

 
(9,997
)
 
762,997

 
(12,260
)
Total fixed maturities
412,857

 
(5,768
)
 
1,333,930

 
(22,079
)
 
1,746,787

 
(27,847
)
Equity securities:
 
 
 
 
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
16,219

 
(1,531
)
 
—

 
—

 
16,219

 
(1,531
)
Industrial, consumer and all other
86,062

 
(5,834
)
 
—

 
—

 
86,062

 
(5,834
)
Total equity securities
102,281

 
(7,365
)
 
—

 
—

 
102,281

 
(7,365
)
Short-term investments
181,964

 
(6
)
 
—

 
—

 
181,964

 
(6
)
Total
$
697,102

 
$
(13,139
)
 
$
1,333,930

 
$
(22,079
)
 
$
2,031,032

 
$
(35,218
)

At December 31, 2014, the Company held 552 securities with a total estimated fair value of $2.0 billion and gross unrealized losses of $35.2 million. Of these 552 securities, 396 securities had been in a continuous unrealized loss position for one year or longer and had a total estimated fair value of $1.3 billion and gross unrealized losses of $22.1 million. All 396 securities were fixed maturities.

The Company completes a detailed analysis each quarter to assess whether the decline in the fair value of any investment below its cost basis is deemed other-than-temporary. All securities with unrealized losses are reviewed. The Company considers many factors in completing its quarterly review of securities with unrealized losses for other-than-temporary impairment, including the length of time and the extent to which fair value has been below cost and the financial condition and near-term prospects of the issuer. For equity securities, the ability and intent to hold the security for a period of time sufficient to allow for anticipated recovery is considered. For fixed maturities, the Company considers whether it intends to sell the security or if it is more likely than not that it will be required to sell the security before recovery, the implied yield-to-maturity, the credit quality of the issuer and the ability to recover all amounts outstanding when contractually due.

For equity securities, a decline in fair value that is considered to be other-than-temporary is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. For fixed maturities where the Company intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovery of its amortized cost, a decline in fair value is considered to be other-than-temporary and is recognized in net income based on the fair value of the security at the time of assessment, resulting in a new cost basis for the security. If the decline in fair value of a fixed maturity below its amortized cost is considered to be other-than-temporary based upon other considerations, the Company compares the estimated present value of the cash flows expected to be collected to the amortized cost of the security. The extent to which the estimated present value of the cash flows expected to be collected is less than the amortized cost of the security represents the credit-related portion of the other-than-temporary impairment, which is recognized in net income, resulting in a new cost basis for the security. Any remaining decline in fair value represents the non-credit portion of the other-than-temporary impairment, which is recognized in other comprehensive income (loss). The discount rate used to calculate the estimated present value of the cash flows expected to be collected is the effective interest rate implicit for the security at the date of purchase.


12
Table of Contents

When assessing whether it intends to sell a fixed maturity or if it is likely to be required to sell a fixed maturity before recovery of its amortized cost, the Company evaluates facts and circumstances including decisions to reposition the investment portfolio, potential sales of investments to meet cash flow needs and, ultimately, current market prices.

c)The amortized cost and estimated fair value of fixed maturities at September 30, 2015 are shown below by contractual maturity.

(dollars in thousands)
Amortized
Cost
 
Estimated
Fair Value
Due in one year or less
$
538,793

 
$
541,638

Due after one year through five years
1,899,246

 
1,950,115

Due after five years through ten years
1,655,136

 
1,753,390

Due after ten years
3,496,247

 
3,721,089

 
7,589,422

 
7,966,232

Commercial mortgage-backed securities
441,814

 
451,515

Residential mortgage-backed securities
860,869

 
890,804

Asset-backed securities
45,470

 
45,400

Total fixed maturities
$
8,937,575

 
$
9,353,951


d)The following table presents the components of net investment income.

 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(dollars in thousands)
2015
 
2014
 
2015
 
2014
Interest:
 
 
 
 
 
 
 
Municipal bonds (tax-exempt)
$
21,979

 
$
24,505

 
$
72,124

 
$
72,796

Municipal bonds (taxable)
14,667

 
13,523

 
42,917

 
35,133

Other taxable bonds
34,368

 
38,741

 
103,519

 
114,594

Short-term investments, including overnight deposits
1,287

 
1,530

 
3,654

 
4,612

Dividends on equity securities
17,887

 
14,678

 
55,544

 
46,042

Income (loss) from equity method investments
(4
)
 
2,253

 
3,052

 
7,294

Other
37

 
(266
)
 
577

 
1,436

 
90,221

 
94,964

 
281,387

 
281,907

Investment expenses
(3,161
)
 
(3,868
)
 
(10,866
)
 
(11,927
)
Net investment income
$
87,060

 
$
91,096

 
$
270,521

 
$
269,980



e)Cumulative credit losses recognized in net income on fixed maturities where other-than-temporary impairment was identified and a portion of the other-than-temporary impairment was included in other comprehensive income (loss) were $10.7 million at September 30, 2015 and $12.7 million at December 31, 2014.


13
Table of Contents

f)The following table presents net realized investment gains (losses) and the change in net unrealized gains on investments. 

 
Quarter Ended September 30,
 
Nine Months Ended September 30,
(dollars in thousands)
2015
 
2014
 
2015
 
2014
Realized gains:
 
 
 
 
 
 
 
Sales of fixed maturities
$
435

 
$
739

 
$
2,769

 
$
6,381

Sales of equity securities
11,329

 
10,793

 
34,285

 
36,942

Other
1,026

 
134

 
3,297

 
11,958

Total realized gains
12,790

 
11,666

 
40,351

 
55,281

Realized losses:
 
 
 
 
 
 
 
Sales of fixed maturities
(3,730
)
 
(1,658
)
 
(3,947
)
 
(17,805
)
Sales of equity securities
(400
)
 
(175
)
 
(672
)
 
(373
)
Other-than-temporary impairments
(18,281
)
 
(2,851
)
 
(23,373
)
 
(3,858
)
Other
(5,086
)
 
(2,787
)
 
(15,390
)
 
(4,536
)
Total realized losses
(27,497
)
 
(7,471
)
 
(43,382
)
 
(26,572
)
Net realized investment gains (losses)
$
(14,707
)
 
$
4,195

 
$
(3,031
)
 
$
28,709

Change in net unrealized gains on investments:
 
 
 
 
 
 
 
Fixed maturities
$
102,844

 
$
41,615

 
$
(77,369
)
 
$
337,865

Equity securities
(313,075
)
 
(57,773
)
 
(319,522
)
 
160,936

Short-term investments
45

 
37

 
36

 
35

Net increase (decrease)
$
(210,186
)
 
$
(16,121
)
 
$
(396,855
)
 
$
498,836


For the quarter ended September 30, 2015, other-than-temporary impairment losses recognized in net income and included in net realized investment losses totaled $18.3 million and were attributable to eight equity securities. The write downs for the quarter included $14.3 million related to equities in industrial, consumer, or other types of business and $4.0 million related to equities in insurance, banks, and other financial institutions. For the nine months ended September 30, 2015, other-than-temporary impairment losses recognized in net income and included in net realized investment losses totaled $23.4 million and were attributable to 16 equity securities. The write downs for the nine-month period included $18.8 million related to equities in industrial, consumer, or other types of business, and $4.6 million related to equities in insurance, banks, and other financial institutions. For the quarter ended September 30, 2014, other-than-temporary impairment losses recognized in net income and included in net realized investment gains included losses attributable to fixed maturities totaling $0.1 million and losses attributable to equity securities totaling $2.7 million. For the nine months ended September 30, 2014, other-than-temporary impairment losses recognized in net income and included in net realized investment gains included losses attributable to fixed maturities totaling $0.3 million and losses attributable to equity securities totaling $3.6 million.

g)The following table presents the components of restricted assets.

(dollars in thousands)
September 30,
2015
 
December 31,
2014
Restricted assets held in trust or on deposit to support underwriting activities
$
4,733,990

 
$
4,961,061

Investments and cash and cash equivalents pledged as security for letters of credit
654,208

 
635,340

Total
$
5,388,198

 
$
5,596,401



14
Table of Contents

Total restricted assets are included on the Company's consolidated balance sheets as follows.

(dollars in thousands)
September 30,
2015
 
December 31,
2014
Investments, available-for-sale
$
5,016,404

 
$
5,040,413

Restricted cash and cash equivalents
371,794

 
522,225

Other assets
—

 
33,763

Total
$
5,388,198

 
$
5,596,401


4. Fair Value Measurements

FASB ASC 820-10, Fair Value Measurements and Disclosures, establishes a three-level hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the assets or liabilities fall within different levels of the hierarchy, the classification is based on the lowest level input that is significant to the fair value measurement of the asset or liability.

Classification of assets and liabilities within the hierarchy considers the markets in which the assets and liabilities are traded and the reliability and transparency of the assumptions used to determine fair value. The hierarchy requires the use of observable market data when available. The levels of the hierarchy are defined as follows:

Level 1 – Inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities traded in active markets.

Level 2 – Inputs to the valuation methodology include quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the asset or liability and market-corroborated inputs.

Level 3 – Inputs to the valuation methodology are unobservable for the asset or liability and are significant to the fair value measurement.

In accordance with FASB ASC 820, the Company determines fair value based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various methods, including the market, income and cost approaches. The Company uses valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. The following section describes the valuation methodologies used by the Company to measure assets and liabilities at fair value, including an indication of the level within the fair value hierarchy in which each asset or liability is generally classified.

Investments available-for-sale. Investments available-for-sale are recorded at fair value on a recurring basis and include fixed maturities, equity securities and short-term investments. Short-term investments include certificates of deposit, commercial paper, discount notes and treasury bills with original maturities of one year or less. Fair value for investments available-for-sale is determined by the Company after considering various sources of information, including information provided by a third party pricing service. The pricing service provides prices for substantially all of the Company's fixed maturities and equity securities. In determining fair value, the Company generally does not adjust the prices obtained from the pricing service. The Company obtains an understanding of the pricing service's valuation methodologies and related inputs, which include, but are not limited to, reported trades, benchmark yields, issuer spreads, bids, offers, duration, credit ratings, estimated cash flows and prepayment speeds. The Company validates prices provided by the pricing service by reviewing prices from other pricing sources and analyzing pricing data in certain instances.

The Company has evaluated the various types of securities in its investment portfolio to determine an appropriate fair value hierarchy level based upon trading activity and the observability of market inputs. Level 1 investments include those traded on an active exchange, such as the New York Stock Exchange. Level 2 investments include U.S. Treasury securities and obligations of U.S. government agencies, municipal bonds, foreign government bonds, commercial mortgage-backed securities, residential mortgage-backed securities, asset-backed securities and corporate debt securities.

15
Table of Contents



Fair value for investments available-for-sale is measured based upon quoted prices in active markets, if available. Due to variations in trading volumes and the lack of quoted market prices, fixed maturities are classified as Level 2 investments. The fair value of fixed maturities is normally derived through recent reported trades for identical or similar securities, making adjustments through the reporting date based upon available market observable data described above. If there are no recent reported trades, the fair value of fixed maturities may be derived through the use of matrix pricing or model processes, where future cash flow expectations are developed based upon collateral performance and discounted at an estimated market rate. Significant inputs used to determine the fair value of obligations of states, municipalities and political subdivisions, corporate bonds and obligations of foreign governments include reported trades, benchmark yields, issuer spreads, bids, offers, credit information and estimated cash flows. Significant inputs used to determine the fair value of commercial mortgage-backed securities, residential mortgage-backed securities and asset-backed securities include the type of underlying assets, benchmark yields, prepayment speeds, collateral information, tranche type and volatility, estimated cash flows, credit information, default rates, recovery rates, issuer spreads and the year of issue.

Senior long-term debt and other debt. Senior long-term debt and other debt is carried at amortized cost with the estimated fair value disclosed on the consolidated balance sheets. Senior long-term debt and other debt is classified as Level 2 within the fair value hierarchy due to variations in trading volumes and the lack of quoted market prices. Fair value for senior long-term debt and other debt is generally derived through recent reported trades for identical securities, making adjustments through the reporting date, if necessary, based upon available market observable data including U.S. Treasury securities and implied credit spreads. Significant inputs used to determine the fair value of senior long-term debt and other debt include reported trades, benchmark yields, issuer spreads, bids and offers.

The following tables present the balances of assets and liabilities measured at fair value on a recurring basis by level within the fair value hierarchy.

 
September 30, 2015
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments available-for-sale:
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
—

 
$
708,795

 
$
—

 
$
708,795

Obligations of states, municipalities and political subdivisions
—

 
3,956,324

 
—

 
3,956,324

Foreign governments
—

 
1,477,132

 
—

 
1,477,132

Commercial mortgage-backed securities
—

 
451,515

 
—

 
451,515

Residential mortgage-backed securities
—

 
890,804

 
—

 
890,804

Asset-backed securities
—

 
45,400

 
—

 
45,400

Corporate bonds
—

 
1,823,981

 
—

 
1,823,981

Total fixed maturities
—

 
9,353,951

 
—

 
9,353,951

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
1,275,409

 
—

 
—

 
1,275,409

Industrial, consumer and all other
2,881,004

 
—

 
—

 
2,881,004

Total equity securities
4,156,413

 
—

 
—

 
4,156,413

Short-term investments
2,224,533

 
99,450

 
—

 
2,323,983

Total investments available-for-sale
$
6,380,946

 
$
9,453,401

 
$
—

 
$
15,834,347



16
Table of Contents

 
December 31, 2014
(dollars in thousands)
Level 1
 
Level 2
 
Level 3
 
Total
Assets:
 
 
 
 
 
 
 
Investments available-for-sale:
 
 
 
 
 
 
 
Fixed maturities:
 
 
 
 
 
 
 
U.S. Treasury securities and obligations of U.S. government agencies
$
—

 
$
673,262

 
$
—

 
$
673,262

Obligations of states, municipalities and political subdivisions
—

 
4,317,547

 
—

 
4,317,547

Foreign governments
—

 
1,611,921

 
—

 
1,611,921

Commercial mortgage-backed securities
—

 
430,627

 
—

 
430,627

Residential mortgage-backed securities
—

 
982,847

 
—

 
982,847

Asset-backed securities
—

 
99,490

 
—

 
99,490

Corporate bonds
—

 
2,307,188

 
—

 
2,307,188

Total fixed maturities
—

 
10,422,882

 
—

 
10,422,882

Equity securities:
 
 
 
 
 
 
 
Insurance, banks and other financial institutions
1,311,925

 
—

 
—

 
1,311,925

Industrial, consumer and all other
2,825,651

 
—

 
—

 
2,825,651

Total equity securities
4,137,576

 
—

 
—

 
4,137,576

Short-term investments
1,469,975

 
124,874

 
—

 
1,594,849

Total investments available-for-sale
$
5,607,551

 
$
10,547,756

 
$
—

 
$
16,155,307


There were no transfers into or out of Level 1 and Level 2 during the nine months ended September 30, 2015 and 2014.

The Company did not have any assets or liabilities measured at fair value on a non-recurring basis during the nine months ended September 30, 2015 and 2014.


17
Table of Contents

5. Segment Reporting Disclosures

The Company monitors and reports its ongoing underwriting operations in the following three segments: U.S. Insurance, International Insurance and Reinsurance. In determining how to aggregate and monitor its underwriting results, the Company considers many factors, including the geographic location and regulatory environment of the insurance entity underwriting the risk, the nature of the insurance product sold, the type of account written and the type of customer served. The U.S. Insurance segment includes all direct business and facultative placements written by the Company's insurance subsidiaries domiciled in the United States. The International Insurance segment includes all direct business and facultative placements written by the Company's insurance subsidiaries domiciled outside of the United States, including the Company's syndicate at Lloyd's of London. The Reinsurance segment includes all treaty reinsurance written across the Company. Results for lines of business discontinued prior to, or in conjunction with, acquisitions, including the results attributable to the run-off of life and annuity reinsurance business, are reported in the Other Insurance (Discontinued Lines) segment. All investing activities related to the Company's insurance operations are included in the Investing segment.

The Company's non-insurance operations include the Company's Markel Ventures operations, which primarily consist of controlling interests in various industrial and service businesses. The Company's non-insurance operations also include the results of the Company's legal and professional consulting services. For purposes of segment reporting, the Company's non-insurance operations are not considered to be a reportable segment.

Segment profit for the Investing segment is measured by net investment income and net realized investment gains or losses. Segment profit or loss for each of the Company's underwriting segments is measured by underwriting profit or loss. The property and casualty insurance industry commonly defines underwriting profit or loss as earned premiums net of losses and loss adjustment expenses and underwriting, acquisition and insurance expenses. Underwriting profit or loss does not replace operating income or net income computed in accordance with U.S. GAAP as a measure of profitability. Underwriting profit or loss provides a basis for management to evaluate the Company's underwriting performance. Segment profit or loss for the Company's underwriting segments also includes other revenues and other expenses, primarily related to the run-off of managing general agent operations that were discontinued in conjunction with acquisitions. Other revenues and other expenses in the Other Insurance (Discontinued Lines) segment are comprised of the results attributable to the run-off of life and annuity reinsurance business.

For management reporting purposes, the Company allocates assets to its underwriting, investing and non-insurance operations. Underwriting assets are all assets not specifically allocated to the Investing segment or to the Company's non-insurance operations. Underwriting and investing assets are not allocated to the U.S. Insurance, International Insurance, Reinsurance or Other Insurance (Discontinued Lines) segments since the Company does not manage its assets by underwriting segment. The Company does not allocate capital expenditures for long-lived assets to any of its underwriting segments for management reporting purposes.


18
Table of Contents

a)The following tables summarize the Company's segment disclosures.

 
Quarter Ended September 30, 2015
(dollars in thousands)
U.S.
Insurance
 
International
Insurance
 
Reinsurance
 
Other
Insurance
(Discontinued
Lines)
 
Investing
 
Consolidated
Gross premium volume
$
635,926

 
$
284,576

 
$
239,094

 
$
(1,232
)
 
$
—

 
$
1,158,364

Net written premiums
536,285

 
213,423

 
204,336

 
(860
)
 
—

 
953,184

 
 
 
 
 
 
 
 
 
 
 
 
Earned premiums
534,615

 
225,034

 
204,825

 
(799
)
 
—

 
963,675

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(357,400
)
 
(162,024
)
 
(128,428
)
 
—

 
—

 
(647,852
)
Prior accident years
74,976

 
57,860

 
24,241

 
6,038

 
—

 
163,115

Underwriting, acquisition and insurance expenses
(200,272
)
 
(92,680
)
 
(72,449
)
 
(218
)
 
—

 
(365,619
)
Underwriting profit
51,919

 
28,190

 
28,189

 
5,021

 
—

 
113,319

Net investment income
—

 
—

 
—

 
—

 
87,060

 
87,060

Net realized investment losses
—

 
—

 
—

 
—

 
(14,707
)
 
(14,707
)
Other revenues (insurance)
(41
)
 
1,096

 
246

 
42

 
—

 
1,343

Other expenses (insurance)
(960
)
 
(1,379
)
 
—

 
(6,913
)
 
—

 
(9,252
)
Segment profit (loss)
$
50,918

 
$
27,907

 
$
28,435

 
$
(1,850
)
 
$
72,353

 
$
177,763

Other revenues (non-insurance)
 
 
 
 
 
 
 
 
 
 
305,393

Other expenses (non-insurance)
 
 
 
 
 
 
 
 
 
 
(281,497
)
Amortization of intangible assets
 
 
 
 
 
 
 
 
 
 
(18,914
)
Interest expense
 
 
 
 
 
 
 
 
 
 
(30,064
)
Income before income taxes
 
 
 
 
 
 
 
 
 
 
$
152,681

U.S. GAAP combined ratio (1)
90
%
 
87
%
 
86
%
 
NM

(2) 
 
 
88
%

 
Quarter Ended September 30, 2014
(dollars in thousands)
U.S.
Insurance
 
International
Insurance
 
Reinsurance
 
Other
Insurance
(Discontinued
Lines)
 
Investing
 
Consolidated
Gross premium volume
$
619,510

 
$
271,045

 
$
206,125

 
$
(230
)
 
$
—

 
$
1,096,450

Net written premiums
520,511

 
194,639

 
166,848

 
(217
)
 
—

 
881,781

 
 
 
 
 
 
 
 
 
 
 
 
Earned premiums
516,753

 
216,764

 
220,513

 
(23
)
 
—

 
954,007

Losses and loss adjustment expenses:
 
 
 
 
 
 
 
 
 
 
 
Current accident year
(348,877
)
 
(160,132
)
 
(155,189
)
 
—

 
—

 
(664,198
)
Prior accident years
60,944

 
30,791

 
8,258

 
(6,761
)
 
—

 
93,232

Underwriting, acquisition and insurance expenses
(202,765
)
 
(81,706
)
 
(65,874
)
 
(148
)
 
—

 
(350,493
)
Underwriting profit (loss)
26,055

 
5,717

 
7,708

 
(6,932
)
 
—

 
32,548

Net investment income
—

 
—

 
—

 
—

 
91,096

 
91,096

Net realized investment gains
—

 
—